The Turkey Agroindustry project, supported by Loan 3077 for US$150 million equivalent, was approved in FY89. The loan closed, fully disbursed, on April 30, 1997, after two extensions totaling 16 months. The government of Japan provided cofinancing of Yen 607.5 million (US$3.2 million equivalent) for technical assistance. The Implementation Completion Report (ICR) was prepared by the Europe and Central Asia Regional Office. A contribution from the borrower is appended to the ICR.

The project aimed to: (i) increase the output of agroindustry, (ii) improve the capabilities of participating credit institutions (PCI), and (iii) strengthen agroindustry marketing and planning in the fisheries subsector. Components were capital investments through a credit line with PCIs for increasing capacity utilization and for new capacity, financial restructuring (assisted by PCIs), establishment of an institute for training in marketing and for fisheries planning, and technical assistance for PCIs, a fisheries survey and marketing. At appraisal the agroindustry subsector included processing (of food and beverages, raw cotton and agricultural inputs), packaging, storage, transport and handling, animal feeds, tobacco, sawmilling, and tanneries. Spinning and weaving were added during implementation.

The project achieved its physical and financial objectives, but only after restructuring in 1994. Initial demand for credit in the early 1990s was strong but then fell off as macro-economic conditions worsened, particularly the relationship between high inflation, interest rates and compensating devaluations, and because of the Gulf War crisis. Restructuring opened the line of credit to broader demand, including free standing working capital loans, and made single currency loans in US dollars and Deutsch Marks more market oriented (by breaking the connection with the Bank’s pool rate). Aided by a strong general recovery in investment in 1995, remaining loan funds were soon committed. However, the appraisal strategy to assist ailing firms to recover, by restructuring and reinvestment, was little followed as the PCIs preferred to finance the upgrading and expansion of stronger clients. Investments funded a combination of new enterprises and increased capacity use, which was up 25 percent compared with the appraisal estimate of 30 percent. Investments totaled US$524 million, compared to US$409 million envisaged at appraisal. Unfortunately, the ICR does not provide any information on the types of enterprises actually financed. In total, four PCIs made 95 sub-loans, but two PCI were dominant. The average loan size was US$1.6 million, compared with 250 loans averaging US$0.6 million projected at appraisal. PCI loan contributions were zero, compared with an appraisal expectation of US$57.5 million, with sub-borrowers making up the difference. Other parts of the project largely achieved their objectives (marketing training, and strengthening of PCIs to appraise and supervise subprojects). The fisheries component carried out planned studies, recommended policies, contributed to negotiations on Black Sea resources, and improved planning capacity, but did not produce the planned investment proposals. The grant funds from Japan grew with yen devaluation to about US$5.4 million, allowing the release to credit uses of Bank loan funds allocated for non-credit items, as these items were financed from the grant.

Financial rates of return of subprojects are strong with an average of 28 percent. Loan recovery rates are running at over 99 percent. The implicit financial objective of improving the financial position of PCIs was achieved, although one was in difficulty because of its behest operations for government. At appraisal economic rates of return (ERR) were expected to be at least 15 percent, while appraisals by PCIs projected ERRs ranging from 15-60 percent. A re-evaluation of a sample of 11 enterprises, which received 25 percent of investments, showed a range of 20-60 percent, with a healthy weighted average of 29 percent. The ICR discusses the borrower’s plan for future operations. Recovered loan funds will continue to be lent for agroindustrial loans until the government loans to the PCIs are repaid.

The Operations Evaluation Department (OED) endorses the ICR ratings of outcome as satisfactory, institutional development as substantial, and sustainability as likely. OED also endorses the rating of Bank performance as satisfactory, although the Bank was slow to take action when changing circumstances reduced credit demand. This delay resulted in significant real and opportunity losses for the borrower.

The ICR draws some valuable lessons, of which the most important is that even in times of high inflation it is possible to design a successful credit operation provided that on-lending arrangements are appropriate and government policies with respect to managing inflation are supportive.

The ICR is satisfactory, except for its failure to record or discuss the types of enterprises financed.